Section 80RRB of Income Tax Act

Under Section 80RRB, one can claim for an income tax deduction for earning income via royalty on a patent. The royalty amount received by an individual is eligible for deduction under Section 80RRB of the Income Tax Act of 1961. This section was introduced with the sole purpose of encouraging innovation and patenting in India. An individual can claim for tax deduction up to Rs 3,00,000 per annum under this section.

One can claim for deduction under this section provided they fulfil the following criteria.

• The individual should be an Indian Resident.
• The patent should be registered under the Patent Act of 1970 either on or after April 1, 2003.
• Individuals who hold the original patent can claim this tax deduction other cannot claim for tax benefits under this section.

What is Royalty?

Royalty refers to the amount paid to a person by a group or a party against the usage of certain work produced by the recipient. This is usually associated with art, books, music, inventions and so on. Royalty payments are usually recurring in nature and can range for a specific period or can continue until the death of the recipient. One can claim for deduction under Section 80RRB of the Income Tax Act if he/she receives royalty income.

What is Patent?

The patent refers to the intellectual property right and it ensures the innovator that their rights are protected. It allows the innovator to monetize his/her innovation and generate income regularly from using it. If an innovator gives another individual or firm or entity the right to use the patented innovation, in return they will receive a regular payment for the same and this is known as a royalty payment. When the innovator does not have the means to develop their idea into an effective offering, then an individual or a firm or an entity will take the right to use that innovation idea and then develops it into an effective product, in such a situation, that entity will pay the innovator a royalty amount against the use of innovation commercially. The royalty payment may either be a fixed amount or it can be a certain percentage of sales for a given period of time.